While the sky is not falling, the impacts are undeniable
In our previous episode we discussed what changes to expect as a result of HUD’s most recent changes to the federally-insured reverse mortgage. This week we will examine some real-life scenarios on how the HECM overhaul will impact your business and your future borrowers.
Beyond absorbing the recent HECM overhaul with it’s lower lending ratios, reduced interest rate floor, and a higher upfront FHA insurance premium should prompt two crucial questions- how will this impact my potential borrowers? How should I adjust my marketing and sales approach as a result?
So what’s the impact on new HECM borrowers? Well first we must take into consideration two important factors: higher upfront costs with origination fees and the increased one-time FHA insurance premium and second- the lower recurring costs of the loan due to reduced ongoing margins, and the diminished lending ratios which lower the amount borrowed.
10 Comments
Be careful about the illustrations and examples you are using. Because of lower Principal Limit Factors and lower growth rates generally, a lot of the research once accepted as correct is now SUBSTANTIALLY incorrect.
If you want to get on the bad list of an ethical and competent advisor (particularly one with a legally binding fiduciary standard of care) either get outdated information to the advisor or do not get the advisor updated information when you gave the advisor something that is now outdated. It is always a good excuse for an appointment anyway.
Cynic,
Point taken. All LOS companies (BayDocs & ReverseVision) will be quoting the correct assumed loan balance growth (negative amortization) and assumed appreciation. That said, the new requirement to show all options regardless if the lender offers them should be interesting to see fully implemented by mortgagees.
Shannon,
These are not the illustrations and examples I am speaking of although your point is also well taken.
My comment above is focused on the specific illustrations and examples developed by groups dedicated to reaching out to financial advisers such as that developed by Shelley Giordano and Torrey Larsen. The purpose of these illustrations and examples was to present the various strategies developed since fiscal 2012 or the new rule of 30 which appears to be in question because of the impact of Mortgagee Letter 2017-12. Also beware that the articles posted on financial planning using a HECM are now out of date.
Let us assume in each case, the borrower only takes $162,000 at closing. Let us assume that in each case, the average effective interest rate will equal their respective expected interest rates. Let us assume all facts are the same over the period of 20 years and that no more money is taken out and no more pay downs were made by the borrowers.
In 20 years the HECM with the case number assigned before 10/2/2017 the balance due is $660,813 and for the HECM with the case number assigned after 10/1/2017 the balance due is $515,327. The line of credit for the loan with the earlier case number assignment starts at $24,750 and after 20 years is $100,958 and for the HECM with the later case number assignment, the line of credit starts at $8,250 but only grows to be $27,039 after 20 years.
So while the balance due for the HECM with the earlier case number assignment in the vlog examples is a little less than $145,500 larger than the other HECM, the line of credit of the HECM with earlier case number assignment is a little more than $73,900 larger.
Jim,
Excellent point on the line of credit (PLF) growth rate being substantially cut due to (1) lower ongoing MIP rates as part of calculation, (2) reduced PLF/lending ratios, and (3) a lower lifetime loan margin. I would argue that your analysis should give us some hope that the LOC growth would not be eliminated, despite calls from AARP to do so.
I hope the AARP call to eliminate the growth in the line of credit is ignored as it should be.
why don’t you explain the points the LO will be paid with the new reverse, it would be very helpful
Thank you,
We don’t address the points or commissions paid as they vary from lender to lender and also differ weather the LO is working in retail or as an independent broker.
Please explain the points to the L.O. with the new reverse
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